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Is Your Worker Classified as an Employee or Independent Contractor?

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Whether a start-up or a longstanding company, hiring workers is an essential part of owning a business. The classification of your worker as an Employee or Independent Contractor has important implications, so it is critical to understand the difference.

Generally, a worker is as an Employee when the employer has the right to control the details of how the services will be performed. Essentially, the employer is in complete control of when, how, where and how the work is done. An Independent Contractor is one who is employed to do certain work, who employs his own labor and does the work according to his own ideas and plans, to whom the owner looks only for results of the work. The employer gives deference to an Independent Contractor on details as the focus is completion of the work.

The IRS has a 20-factor test to determine whether a worker is an Employee or Independent Contractor. The following chart summarizes how each of the 20 factors support the classification of Employee or Independent Contractor:

FactorEmployeeIndependent Contractor
InstructionsA worker that is generally required to comply with instructionsA worker that is granted autonomy regarding instructions
TrainingA worker required to receive special training from employer for the workA worker hired for their specialized training or skill
IntegrationWorker does work that is an “integral” part of the employer’s businessWorker does work that is less integral, even tangential, to the employer’s business
Services Rendered PersonallyIf services must be rendered personally, the employer likely wants more control over the workerThe employer permits the worker to delegate work
Hiring, Supervising, and PayingThe employer hires, supervises, and pays the worker directlyThe work is set up via contract, and the worker can hire, supervise, and pay other assistant-workers or subcontractors
Continuing RelationshipLong-term engagement between employer and workerShort-term or one-time engagement with employer and worker
Set HoursWorker has set hours of workWorker usually does not have set hours
Full Time RequiredWorker usually on full-time basis, restricted from other meaningful employmentWorker usually not restricted as full-time employee and operates on own schedule
Work Done on PremisesWork could be done elsewhere, but worker is required to work on employer’s premisesWorker has freedom to complete work anywhere (if possible)
Order or Sequence SetEmployer requires worker to perform work in a sequenceWorker not required to follow any sequence of work
Oral or Written ReportsWorker required to provide regular reportsWorker not required to submit updates or reports
Payments by Hour, Week or MonthWorker paid by hour, week, or monthWorker paid per job or straight commission
Payment of ExpensesEmployer generally pays worker’s travel or business expensesEmployer does not retain right to regulate business activities of worker
Furnishing of Tools or MaterialsEmployer furnishesWorker furnishes
Significant InvestmentEmployer provides significant investment for workWorker provides significant investment for work
Profit or LossWorker cannot realize the profit or suffer a loss from the workWorker who can realize the profit or suffer a loss from the work
Working for More Than One Firm at a TimeWorker that generally provides services for one businessWorker that generally provides services for multiple businesses at a time
Making Services Available to the General PublicWork generally not made available to the publicWork generally made available to the public
Right to DischargeUsually, the unrestricted right for employer to fire workerUsually, the right to fire worker must be with cause.
Right to TerminateWorker can terminate relationship with employer without incurring liabilityWorker will incur liability if work is terminated with employer

Under President Trump, the Department of Labor (DOL) issued a new rule on worker classification, which was withdrawn by the Biden administration. The rule would have given employers 2 primary factors in classifying workers: (1) the nature and degree of control over the work; and (2) the worker’s opportunity to earn profits or incur losses. Analysts and pundits believe the DOL’s rule was more employer friendly as it deemed two factors to be most important. The Biden administration’s revocation of the rule returns employers to the “economic realities test” which somewhat models the IRS 20-factor test.

Virginia Specific Rules

Effective January 1, 2021, Virginia applies the 20-factor IRS test in determining the classification of a worker as Employee or Independent Contractor under Labor and Employment Laws (including the Virginia Minimum Wage Act), the Unemployment Compensation Act, the Workers’ Compensation Act, and State tax laws. Workers are presumed to be Employees unless it is demonstrated that they are Independent Contractors. As mentioned, it is imperative that as a business owner you correctly classify your worker. Virginia employers that fail to properly classify the workers, and thus fail to pay the correct taxes, face a $1,000 civil penalty for the first offense, a $2,500 penalty for a second offense, and a $5,000 penalty for a third or subsequent offense.

North Carolina Specific Rules

There is no statutory definition for an Independent Contractor under North Carolina law. However, North Carolina courts have applied a “right-to-control” test for the last 60 years. Under this test, a worker is an Independent Contractor if he or she:

  • Selects his own time;
  • Is free to use such assistants as he or she thinks proper;
  • Has full control over those assistants;
  • Is engaged in an independent business, calling, or occupation;
  • Has the independent use of his or her skill, knowledge, or training in executing the work;
  • Is doing specific work at a fixed price;
  • Is not subject to discharge or termination because he or she adopts a particular method of work; and
  • Is not in the regular employ of the “employer” or contracting party.

Client Reviews

We are proud to have more than 100 five-star reviews across Google, Avvo, and other platforms.
  • Being a first time business owner, you want to make sure you're making all the right decisions. Choosing McCormick Law & Consulting, along with Emma and Taylor, made the process so easy! Emma understood right away what my primary concerns were, and was able to execute everything in a very timely manner! She was extremely easy to talk to and she took the time to explain everything to me, settling my nerves with taking this next big step. Taylor made the process of making it all official completely stress free.
    Crystal G.
  • I am a criminal defense attorney licensed in both North Carolina and Virginia. I have taught attorneys across the State of North Carolina on varying trial matters ranging from jury selection to DWI defense. I definitely could have created my new business, Davis Wealth Management LLC, but boy that would have been a mistake. Because business formation is not an area in which I practice, I had no idea where my blind spots were, and let me tell you there were plenty. The knowledge I received from the firm is invaluable.

    John McCormick and his firm are very reasonably priced and quickly and efficiently assisted me in creating my new business. It was completely turn key; they did everything for me.

    I can't recommend their services enough. Also, huge shoutout to Taylor who kept me informed every step of the way!

    James D.
  • I highly recommendMcCormick Law & Consulting! My Father and I live in two separate states and the properties he needed legal services for are in Virginia. I reach out to Taylor on two separate occasions and she was very responsive and professional. The first time we used their services it went so smoothly that by the time I needed their services again I knew I could just send over the necessary documents, pay my invoice and rest assured it would all get taken care of. They eliminated the stress that comes with handling some else's affairs and I so appreciate that.
    Heather C.
  • From the the very 1st conversation with their office it was clear they would be responsive to all my questions and any support with my business. They are relatable and make their customers feel comfortable with any questions and or concerns that might arise while using their services. I am happy to have found them to support me with my small business needs!
    Lisa N.
  • I can't say enough great things about the professional team at McCormick Law & Consulting! We really had no idea of who to trust and who we could count on for quick and professional service in the Hampton Roads area for getting our new business up and running smoothly and the Team at McCormick Law & Consulting really knocked it out of the park with us!
    Jerry G.
  • I had the good fortune of working with McCormick Law on a business sales contract. I sent them the initial draft provided by the buyer along with a few notes about my specific concerns. They carefully went through the document and provided meaningful additions and corrections that better protected my interests. Thanks to Bobby and John for their personalized attention.
    Arthur B.
  • Mr. McCormick and his entire team were amazing! They assisted me in a legal matter concerning a business dispute. Mr. McCormick is highly experienced, ethical, dedicated, and was prepared to fight my legal matter in court if necessary. I thank the entire team for believing in me and would highly recommend them to anyone!!
    Jeanette L.
  • We used McCormick Law to start up another LLC and it was a great experience. I have used other lawyers and attorneys in the past and I experienced delayed responses and it was what I have come to expect.From the first interactions with Robert and his team, I was surprised to how responsive they were. I even mentioned to my new business partner that this was not normal and I was very happy.Needless to say I will be using McCormick Law for all of my business needs in the future.
    Colton S.
  • I utilized this firm for help on a real estate matter. I felt comfortable with the advice I received and am happy to continue doing business with them and referring others to the practice. Everyone I engaged with was welcoming and made the process very easy.
    Christian S.
  • John and his team were great to work with. They provided advice for starting my business and set everything up in an efficient and timely manner. I will definitely recommend them to others!

    Elizabeth H.
  • I contacted McCormick Law firm to register my moving service in NC. They did an outstanding job. Completed the process way sooner than I expected. Thank you, Taylor.

    Steve T.

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    McCormick Law, PC d/b/a McCormick Law & Consulting is a boutique business and real estate law firm located in Norfolk, Virginia & Raleigh, North Carolina, that seamlessly serves clients throughout Virginia and North Carolina. Whether you are a new or existing client of the firm, McCormick Law, PC, cannot represent you on any new matter until the firm has made a determination that there is no conflict of interest and that it is willing to accept the new engagement. The testimonials on this website reflect the real-life experiences and opinions of our clients. However, the experiences are personal to those particular clients, and may not necessarily be representative of all clients. We do not claim, and you should not assume, that all clients will have the same experience. Your outcome may vary.

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